The Supply Chain Matters blog highlights two additional May 2022 indicators of supply chain volatility as well as logistics services trending.

In an update published earlier this month, we highlighted various quantitative data related to global and regional supply chain PMI indices for May . Our stated takeaway from the published May data that there were discernable signs of change occurring across the global supply chain landscape.

Now, added published indices that reflect on global supply chain volatility and U.S. logistics trends reinforce a shifting tide along with concerns as to what to expect in the second half of 2022. Such forces re declining consumer demand, bloated inventory levels, added industry supply chain disruptions and higher levels of cost inflation. Regarding the latter, the U.S. Bureau of Labor Statistics reported today that the Producer Price Index, a measure of prices paid to producers of goods at the wholesale level, rose to annual rate 10.8 percent, is hovering at the highest levels since December 1981.

 

Global Supply Chain Pressure Index

According to the estimated May 2022 Global Supply Chain Pressure Index (GSPI), compiled and published by the Federal Reserve Bank of New York, overall pressures reportedly declined in May 2022. This index complies 27 different variables to include transportation movement and costs, global PMI sub-indexes reflecting delivery times and order backlog. The index is such that a value of zero indicates pressures of normal value, positive values above zero are an indication of standard deviation above the average.

This index reportedly declined to a value of 2.90, down from a reported reading of 3.4 in April, and 2.80 in March. The authors note a reversing of the increased pressures observed for April. Further noted: “The moves in GSCPI over the past three months suggest, for now,  stabilization of global supply chain pressures at historically high levels.”

None the less, this index hovering at near 3 standard deviations above an average value of volatility reflects continued pressures. In reporting April’s data, the authors suggested a worsening of conditions as renewed strains emerge across global supply chains.

Supply Chain Matters would add that as current signs indicate that major manufacturing and logistics regions are returning to some signs of normalization after two plus months of Covid related shutdowns, the tide of material shipments headed to other global destinations over the coming 3-4 months could well add to heightened industry supply chain volatility. Chinese delivery time disruptions was reportedly one of the principal drivers of April’s volatility reading.

 

 

US Logistics Managers Index

The Logistics Managers Index Report®, compiled by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP), reported a May 2022 value of 67.1, compared to April value of 69.7, and March’s all-time high value of 76.2.

According to the May report, growth is increasing at a higher rate for inventory costs, warehousing utilization, warehousing storage prices, transportation capacity and utilization. Reportedly, growth is increasing at a lower rate for inventory levels and transportation pricing.

The authors specifically indicate: “The downward shift in the index continues to be driven by a loosening in the transportation market, as more capacity comes online (+7.8), and prices decrease (-8.7). Despite this slowdown, it should be noted that we are still observing a healthy rate of growth in transportation, but one that pales in comparison to the unsustainable growth rates observed in 2021.

Regarding overall logistics focused inventory levels, the report authors indicated that the May 2022 value is 10.6 higher than the same time last year, and 12.6 points higher than two years ago. Noted is an overall observation that: “inventories continue to increase more quickly than we would normally expect at this point in the year.” Regarding predictions of LMI movement one year from now, the report authors indicate that respondents are of the view that inventory levels and costs will continue to rise and drive and be a significant LMI weighting. Such observations are reinforced by recent financial performance reporting by major retailers such as Walmart which reported lowered profitability, and Target, having openly acknowledged such a condition, and an aggressive discounting plan to draw down stock levels.

 

Additional Perspectives

We continue to highlight both of the above indices to reflect this new phase of multi-industry supply chain disruption that is now prevalent with each passing day.

The GSPI index trending is the quantitative representation of the ongoing COVID variant infection level, global energy market, and supply and demand impacts of the Russia-Ukraine war impacts on lobal supply chain volatility levels. The sense we garner is that volatility levels will remain high for some time to come.

The latest U.S. Logistics Managers index reflects a lull in imports to U.S. destinations and cutbacks in consumer spending reflected in logistics activities. The most concerning data remains the ongoing high levels of inventory stored among U.S. owned and leased warehouses.

 

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